Numis stays positive on UK domestic banks as rate forecasts ease

(Sharecast News) - Numis Securities said it remains optimistic over the outlook for UK domestic banks, saying that lenders should be able to meet forecasts even as interest rates start to come down. The broker held on to its 'buy' ratings for sector peers Barclays, Lloyds, Natwest and Virgin Money.

"Not only are valuations still attractive but consensus net-interest-income estimates look fine (and possibly too low) in 2025-26, even with base rate at our newly assumed level of 3.25%," Numis said.

A base rate falling to 3.25% by 2026, as Numis predicts, would reduce medium-term pre-tax profit estimates by around 9%. But after "mitigating factors" - like easing deposit migration, lower risks to cost estimates from reduced inflation and a soft landing for the UK economy - the impact on profits falls to just 2%.

"In terms of stock selection, all banks look cheap and the decision is as much about risk appetite and broader portfolio allocation as anything else," the broker said.

Barclays has a target price of 215p (current level: 154p), Lloyds is valued at 57p (current: 48p), Natwest at 305p (current: 222p) while Virgin Money's target is set at 215p (current: 158p).